According to the Ontario Real Estate Association (OREA), there are 82,000 real estate agents in Ontario, spread out across 37 real estate boards.
The largest board by far is the one we belong to, the Toronto Regional Real Estate Board (TRREB). It is actually the largest real estate board in all of Canada and has a whopping 62,000 members.
With 62,000 members able to represent buyers and sellers, there are a lot of people conducting real estate transactions in the GTA. Some do a lot of deals every year and some do very few.
We’re grateful to be amongst the agents who do a lot of deals (26 so far this year) and in the course of representing our clients, we work with lots of other real estate agents. Some of these agents are experienced professionals and those deals go smoothly and are often a win-win for both sides.
Of course, not all of the agents we deal with are as experienced or capable as the best agents. We’ve identified three key ways in which real estate agents lose their clients money. Below are three real-life stories of deals we’ve participated in and the lesson we took from the experience.
Mistake #1 – Splitting the Difference
One of the biggest negotiating mistakes that people make is splitting the difference between what one party is offering and what the other party wants. It is the hallmark of non-professional negotiators as it has the appearance of being fair. In reality, it is far from it.
Here’s a story about why splitting the difference is a mistake.
We listed a home for sale and based on a number of factors, decided to list at the price we wanted rather than list below market value and set an offer date. Our agents spent the time to value the property properly and we came to an agreement with our seller client on the value.
Our sellers were thrilled we could substantiate that high a value and we listed at a price that gave us a bit of wiggle room as we expected we would sell for around 2% below our list price.
When we received an offer, it came in pretty close to our list price with a financing condition. Based on conversations with the buyer agent, it didn’t seem likely the financing would be an issue and they included it more for peace of mind. In conversations with the buying agent, we had made it clear why our list price was a fair value and that is what resulted in an offer that was about 1.5% below our list price.
We spoke with our clients, and they asked for a bit of time to consider it. While they did that, we went back to the buyer agent to discuss the offer again. We talked about a few different aspects and raised the point as to whether the financing condition could be removed and whether they would be willing to increase their offer price. This was just a conversation to determine answers to some questions our clients had asked and to work towards getting a deal done. We had a binding offer that was in writing and there was no risk in asking these questions.
The impression we received in the conversation was that this buying agent wasn’t particularly experienced at negotiations, so we asked if the buyers would consider splitting the difference between what they had offered and our list price, effectively cutting in half the discount off the list price. They agreed to discuss it further with their clients.
Within half an hour, we received a new offer from the buyer agent, with the financing condition removed and the offer price increased up by half of the original difference. While our clients had considered the original offer, we turned it from a conditional offer into a firm offer and we increased the sale price. It sold that day for more than 99% of list price and our clients got everything they wanted.
The mistake that was made was the buyer’s agent agreeing to split the difference. Doing so appears “fair” but the gap between a list price and an offer price is variable and cutting a variable in half doesn’t mean it is fair to both parties. If you were selling a house for $1M and someone offered you $200,000, there would be an $800K gap between the offer price and the list price. Is it fair to split that difference and agree to a $600K sale price?
The lesson is simple – when negotiating remain focused on your goal price and not the gap between it and the other price. Never split the difference.
Mistake #2 – Letting Time Pass
In real estate, time is often the enemy of success. The longer it takes for a deal to come to completion, the greater the likelihood of it falling apart before it gets there. Whether it is a buyer changing their mind during a long negotiation or other competition arriving and changing the end result, the longer deals stretch out, the great the chance of things not going to plan.
Here’s a story about why letting time pass is a mistake.
We listed a condo for sale and priced it at a price we determined was the highest we could substantiate based on recent sales. It would set a new record for price per sf for the building and the unit showed amazing and we thought we could get very close to that list price.
After three days on the market, we had a number of showings and more booked into the evening and following morning.
We received an offer in the late afternoon with a short irrevocable period to 10:00 PM. This means that the offer was only good for about five hours. This was done to put pressure on our sellers to accept the offer before any more showings could take place and before any other buyer could come with another competing offer.
The buyer agent did her job well in applying that pressure and it was a good offer, just a bit below list price. Our clients were inclined to accept it but we knew we had lots of interest and three more showings that evening, plus two more the next day. We placed a call to the buying agent and asked for a longer irrevocable. She should have said no and continued the pressure. The likely result would have been a bit more negotiations but selling for close to the offer price.
Instead, she agreed to extend the irrevocable until 1:00 PM the following day. We let all agents know that we had an offer and that we would be reviewing it and any others the next day at noon. This gave the agents who were showing the property before then the time to consider an offer if their clients loved the home.
The next day we received three additional offers, two from showings the night before. We ended up selling to one of those agents for 107% of list price, setting a much higher price per sf than we had expected that still holds in the building.
The mistake the first agent made was allowing time to pass and competition to show up. She cost her clients the unit and if they had paid what the other offer ending up paying, it would have cost her clients $100K more than if she had kept the time pressure on.
The lesson is clear – the more time that passes, the greater the chance you have to pay more for a property. In real estate, time can literally equal money.
Mistake #3 – Failing to Seize Opportunity
The final mistake that we often see in our dealings with inexperienced agents is not recognizing when there is an opportunity to push on price.
Here’s a story about missing out on an opportunity to do better for your client.
We listed a home in a in-demand neighbourhood and priced it below market value with a set offer date to allow us a week for marketing purposes. We had many showings, with a few days where almost every available time slot was filled.
We were open to a pre-emptive offer but we felt it had to be considerable as we had deliberately listed below market value to the tune of about 10%. The home showed extremely well, both in photos as well as in person, but it was a unique home in some aspects. This made it quite difficult for buyer agents to find comparables. There were different styles of homes in the area that sold in the low $1M range but also homes that sold in the high $1M range. We were more in the middle and the lack of good comparable sales proved to be a real challenge.
On offer day, we received far fewer offers than expected. We thought three or four were likely based on feedback but we ended up with only two agents saying they would submit. At the last minute, one of those agents had their client change their mind and we only had a single offer. It was not at a price we would accept, and the buyer did not have the budget to get there.
While disappointed, we knew that there were a number of agents who had buyers that were interested but had chosen to not submit due to fears of competition pushing it beyond their budget. We made a plan to relist the next day at a new, higher price, with offers accepted anytime. Our clients had given us permission to share that new list price with agents to see if any of them wanted to seize the opportunity before it hit the market with that new price the next day.
When a home is relisted after not selling on offer day, experienced agents understand that this new list price is based on what happened the day before. If a home was listed for $1.1M and relists for $1.3M, they know that they did not receive any offers close to $1.3M the day before, otherwise they would have dealt with that offer and come to an agreement. The new list price is almost always negotiable to some small extent.
We reached out to a number of agents and one was very interested in the fact that we did not sell and would be relisting. They knew what our new list price would be and they wrote up an offer within a couple of hours. The expectation was that it would be close, but not quite at the list price, and it might be conditional upon financing.
Instead of seizing the opportunity presented by an unexpected outcome on offer day, the agent submitted a firm offer of over our intended list price. This was partially a result of how we framed the situation with the agent, but it was also a mistake on the part of the buyer agent. They failed to realize there was an opportunity to push on the price and it cost their client money.
The lesson is a difficult one to consistently implement, but it is important – always monitor and reassess the situation to make sure you’re not missing out on an opportunity due to a change in circumstances.